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GSEs wade into chattel financing

As part of a pilot program revealed last month, the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac plan collectively to bankroll about $200 million in
chattel loans backed by manufactured homes over two years, 2019 and 2020, a move that could
lead to a more stable source of financing for owners of manufactured homes. Paul
Barretto, Fannie Mae’s senior product-development manager for manufactured-housing initiatives, discussed Fannie’s pilot and what the future of chattel financing may hold.

Does Fannie Mae have any experience with the chattel-loan
market?

Fannie Mae has purchased chattel loans in the past, mostly
through pool transactions during the late 1990s to early 2000s. When the
secondary market for chattel loans collapsed, those pools did not perform as
expected. The manufactured housing market and chattel lending is very different
today than it was 10 years ago. As we look to the future, we see significant
challenges in the housing supply and access to credit, especially for those of
modest incomes. The [GSEs'] Duty to Serve [policy mandate] allows us to explore opportunities to apply
our capabilities to manufactured housing, including chattel lending, to best
serve low- and moderate-income families.

Fannie has laid the groundwork for this pilot program
already. So, what has been done to date?

First, we received input from the manufactured-housing
industry [by] hosting numerous forums and discussions to best understand
current needs and how Fannie Mae’s Duty to Serve plan could assist. Based on
that input, we developed an approach to acquiring chattel loans for the pilot.
Our initial approach will be to acquire enough loans to better inform our
understanding of the characteristics and performance of these loans, to best
determine the opportunity for Fannie Mae to provide prudent and sustainable
mortgage solutions for manufactured homes in the future.

Additionally, the lack of industrywide and consistent data
is a significant challenge because it makes the secondary markets’ ability to
assess the risks more difficult. To better understand this data challenge, we’ve engaged the industry to assist us in acquiring some chattel data. We have been pleased with the collaborative support we have received from the
industry. Our next steps include continuing our internal development of the
pilot followed by the request for approval by our regulator.

What might happen after 2020. Would you expand this effort?

Fundamental to our Duty to Serve plan is our ability to
bring liquidity and sustainability in mortgage financing to these underserved
markets. The chattel pilot will help us determine the opportunity to
develop a sustainable chattel solution, and the ability to attract interest
from capital-market investors to create demand for chattel securitization.
Investors make their decisions based on data, particularly loan-performance
data such as prepayment speeds. It is important that chattel data is made
available broadly to build investor confidence in a chattel securitization. As
that confidence builds, more low- and moderate-income families will benefit.

What is the potential of this market?

Fannie Mae believes there is a lot of potential in
manufactured housing market overall, not just chattel. The general public is
starting to recognize the value of manufactured housing and the fact that they
are not "trailers" or "mobile homes." The manufactured-housing industry is
already seeing market growth as traditional homebuilders are unable in most
markets to produce new entry-level homes at the price points of a new
manufactured home. Manufacturers have indicated that they are producing more
homes today than in previous years, and the future looks bright. Last year,
Fannie Mae purchased over $1.8 billion in manufactured homes titled as real
estate, and we are on track to do even more this year. Manufactured-housing
titled as real property makes up only 10 percent to 20 percent of the market,
while the remaining manufactured homes are held as personal property, or
chattel.

And what is the need for financing in this space?

Chattel lending exists today, but it’s through a limited
population of lenders who are holding the loans in portfolio, and there is no
widely available secondary market to sell those loans. Without secondary-market
liquidity, access to credit is limited. Fannie Mae’s goal is to draw attention
to this market, attract more participants and help create a secondary market
that brings greater standardization, transparency and sustainable investment to
ensure that more families attain affordable homeownership.